France: 10-year OAT yields edge towards 5 per cent ahead of Lecornu’s 2027 budget

(Il Sole 24 Ore Radiocor) - Yields on 10-year French OATs have soared to their highest levels since 2002, amid a fresh, widespread sell-off in Eurozone government bonds, on the eve of Prime Minister Sébastien Lecornu’s presentation of the draft 2027 national budget and the social security budget. The OAT yield rose to 4.96 per cent, with a spread of 132 basis points over the 10-year Bund. Lecornu has sounded the alarm over the cost of public debt and promised a “consolidation budget” with measures that will, however, be largely reversible by the new majority to emerge from the 2027 general election.

The government aims to meet the target of a 5 per cent deficit-to-GDP ratio in 2027 next year, having missed it this year (estimates stand at 5.4 per cent), although there are no plans to propose “any across-the-board tax increases”. However, according to the Ministry of Finance’s forecasts, the compulsory tax rate is set to reach 44.2 per cent of GDP in 2027, compared with 43.9 per cent in 2026. Lecornu intends to take action on the expenditure front

increases in the budget or in allocations (Armed Forces, Justice, Home Affairs, Defence, Housing, Research and the Environment) offset by “very substantial savings” in other sectors, including Labour (savings of 2.5 billion euros). Austerity measures are expected to affect local authorities and social security, whilst there are plans to reduce the surtax on businesses.

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